But Are They Right for Your Workforce?

The US Supreme Court issued a highly anticipated decision on May 21, 2018 in Epic Systems Corp. v. Lewis, holding that class action waivers in arbitration agreements are fully enforceable, notwithstanding the right to engage in concerted activity under the National Labor Relations Act.

Although employers now have a tool to effectively eliminate most employment class actions through the use of arbitration agreements, several other important nuances remain to be considered before rolling out an arbitration program.

Click here to learn more about the decision and what it means for your business.

Welcome news for employers: companies can require their workers go through arbitration to pursue any legal claims against their employers, rather than go to court or join together in class lawsuits or grievances, the US Supreme Court held today in a 5-4 vote.

Writing for the majority in three consolidated cases (Epic Systems Corp. v. Lewis, NLRB v. Murphy Oil USA, Inc., and Ernst & Young LLP v. Morris), Justice Neil Gorsuch said the Federal Arbitration Act sets a strong policy favoring the enforcement of arbitration agreements, and employees of the three companies failed to show they had any right to disregard the arbitration agreements they signed.

The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA — much less that it manifested a clear intention to displace the Arbitration Act. Because we can easily read Congress’s statutes to work in harmony, that is where our duty lies.

The ruling means that companies can enforce their class action waiver agreements and their employees will have to pursue their claims in individual arbitration proceedings. Please stay tuned for more to come from us on the actions employers should take now in response to this important decision.

As we previously posted, on January 5, 2018, the Department of Labor did away with its previous six-factor test and announced a new “primary beneficiary” test to determine whether interns and students working for “for-profit” employers are entitled to minimum wages and overtime pay under the Fair Labor Standards Act. See our previous post HERE, as well as the DOL’s Fact Sheet #71 HERE. While employers are required to pay employees for their work, in some circumstances, interns may not actually be employees under the FLSA, and therefore, can be unpaid.

Whether your company is already planning to bring on unpaid interns, or to the extent your company would like to explore the possibility of a new unpaid internship program, you will want to consider the DOL’s new primary beneficiary test so as to guard against potential costly claims for pay and/or overtime.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law bringing significant changes to US tax law. One provision of the Act may further incentivize individuals to work as independent contractors instead of as traditional employees.

The new provision allows for independent contractors, and for service providers structured as a partnership or other flow-through entities, the potential to deduct up to 20% of their revenue from their taxable income. And while some companies might view the opportunity to re-classify individuals from employees to independent contractors as a “win–win” scenario, it could create substantial legal exposure for employers.

Many of the NLRB initiatives established during the previous administration could soon be no more.

On December 1, 2017, the new NLRB General Counsel, Peter Robb, issued a memorandum that rescinded numerous memorandums and initiatives of his predecessor, and set forth the types of future charges that should be submitted to his office for advice. Highlighting the list of the seven expressly-rescinded memorandums are:

GC 11-04 (Default Language). This 2011 memo instructed all NLRB Regional Offices to include certain “default language” in all informal and compliance settlement agreements that provided that if the Charged Party/Respondent failed to comply with the terms of the settlement agreement, the underlying complaint would be re-issued and summary judgment would be entered in favor of the GC. The only issue that could be raised to the Board is whether the Charged Party/Respondent, in fact, defaulted on the terms of the settlement agreement.

GC 12-01 (Guideline Memorandum Concerning Collyer Deferral). This 2012 memo changed the previous deferral policy, directing NLRB Regional Offices to stop deferring Section 8(a)(1) and (3) cases where arbitration will not be completed within a year. If the grievance arbitration was not likely to be completed within one year and deferral was deemed inappropriate, the Region was instructed to conduct a full investigation on the merits of the charge.

Last week, we discussed 5 executive agreement provisions to consider now to help avoid future risk. This week, we are back with our second installment.

As with the previous 5 provisions, companies should pay close attention when drafting the following executive agreement terms so as to best position itself in the event of future disputes.

6. Trade Secret – Last year, the Defend Trade Secrets Act was passed and created a federal cause of action for misappropriation of trade secrets. However, to recover exemplary damages and/or attorneys’ fees under the Act, companies must provide explicit notice to employees that identifies the Act’s immunity provisions for certain types of trade secret disclosure, such as when a trade secret is disclosed through the reporting of a violation of law to federal, state, or local government officials. To maximize their recovery potential, companies should include the relevant notice in their executive agreements.

7. Tax Code § 409A – The Internal Revenue Code includes significant tax penalties for certain deferred compensation arrangements. Under IRC Section 409A, there could be penalties if an executive agreement allows for payments to be made to the executive more than 2.5 months after the tax year in which the executive acquires a legal right to the compensation. This could apply to contract provisions regarding bonuses, severance payments, equity payments, change in control, terminations, and other compensation and benefits provisions. Given the intricacies surrounding these rules and exceptions, companies should engage in a specific review of all executive agreements for compliance to avoid these risks. For more information and updates on 409A in light of recent US tax reform, visit The Compensation Connection.

This is no surprise given the amounts at stake, whether it is the compensation and incentives arguably owed to the executive, or threats to the company’s business itself through unlawful competition, trade secret theft, or unauthorized use of confidential information.

While impossible to safeguard against all risk of course, pay close attention to the following provisions when drafting executive employment agreements. By doing so, the company will be better prepared to defend itself in future litigation, if necessary.

On Monday, September 26, the U.S. Senate voted and confirmed William Emanuel as the newest member of the National Labor Relations Board. Emanuel is a long-time management-side labor and employment attorney, who was nominated by President Trump in June to fill the vacant NLRB seat. With Emanuel’s confirmation, the NLRB has a Republican majority for the first time in ten years.

As previously reported here, President Trump also recently nominated Peter Robb to serve as the next General Counsel for the NLRB. Robb has worked as a management-side attorney in private practice since 1985. If confirmed, Robb would be the first Republican to serve as NLRB General Counsel since 2010.

With Emanuel’s confirmation to the NLRB, as well as Robb’s nomination for General Counsel, several of the previous administration’s union-friendly decisions are expected to be rolled back.

U.S. Secretary of Labor Alexander Acosta announced in a June 7, 2017 press release that the U.S. Department of Labor (DOL) has withdrawn two of its recent administrator’s interpretations. One of the administrator’s interpretations, issued in 2015, focused on the misclassification of employees as independent contractors under the Fair Labor Standards Act (FLSA) and indicated that the DOL would be more closely scrutinizing independent contractor classifications. The other administrator’s interpretation, issued in 2016, examined joint employment relationships under the FLSA. Both interpretations were widely considered to be an attempt by the DOL to expand the coverage and enforcement of the FLSA. The withdrawal of the guidance documents likely indicates a shift in enforcement focus of the DOL under the Trump administration.

On January 13, 2017, the US Supreme Court agreed to determine whether arbitration agreements that include class action waivers are legally enforceable under the National Labor Relations Act (NLRA). In doing so, the Court granted the petitions for certiorari, and consolidated, three cases from the US Court of Appeals for the Fifth, Seventh and Ninth Circuits. While the Fifth Circuit has ruled that class action waivers are enforceable, the Seventh and Ninth Circuits have disagreed and held that class action waivers violate the NLRA. The National Labor Relations Board (NLRB) has also continued to hold that class action waivers violate the NLRA and interfere with employees’ rights to engage in concerted activity. A ruling by the Supreme Court on the issue should resolve the Circuit Court split, provide nationwide guidance, and end the patchwork approach that has been adopted by US employers who utilize arbitration and class waivers. The Supreme Court’s decision is expected before the end of June 2017.

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